Oil prices plummet as UK votes for Brexit

According to Reuters, oil prices have slumped by more than 6% in the wake of the UK’s Brexit vote, with financial markets warning that this could lead to a broader economic slowdown that could reduce demand.

Britain’s vote to leave the European Union is anticipated to have catastrophic consequences for global financial markets. In light of the result of the referendum British Prime Minister David Cameron, who campaigned to remain in the EU, has announced his resignation, which will take effect in October.

The Brexit vote has already proved damaging to the oil market. Brent crude LCOc1 was down US$2.45 at US$48.46/bbl at 1004 GMT. US crude CLc1 was down US$2.39 at US$47.72/bbl.

Earlier in the day, both contracts were down by more than US$3, or over 6%, the biggest intra-day declines for both since April 18, when a meeting of top global oil producers failed to agree on an output freeze.

Sterling GBP= plummeted 10% in value to its weakest since 1985. The FTSE 100 .FTSE fell more than 8% at the open, with banks among the hardest hit.

An uncertain future

"The global uncertainly that (the vote) is likely to unleash is likely to have a potentially negative effect on GDP growth, not only in the UK, but potentially in Europe," said Michael Hewson, chief market analyst CMC markets.

"Obviously we don't know that yet, but certainly in the context of where we were 24 hours ago, the knee-jerk reaction is to sell on the reality," he added.

It is the view of some analysts that oil could face further downward pressure as a result.

"Our view is that we have not yet seen the low oil price of the day with Brent likely to trade down towards US$45 or lower before we have seen the worst of it," Bjarne Schieldrop, chief commodity analyst at SEB, said in note to clients.

Oil major BP (BP.L) said on Friday its headquarters would remain in the United Kingdom, despite the vote.

"It is far too early to understand the detailed implications of this decision and uncertainty is never helpful for a business such as ours," BP said.

The vote to sever ties with Europe will likely cause deep uncertainty over trade and investments due to the unpredictability of the market.

"Any further downturn in the economy or volatility in the oil price could cause further distress in the sector and in particular further project....deferrals might have significant consequence for the service sector who also rely on mobility of employees around the world," PwC UK and EMEA oil and gas leader Alison Baker said.